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Thursday, June 23, 2011

Letter to Mr. Antonis K. Samaras, President Nea Demokratia

Dear Mr. Samaras,

if your position is that Greece needs more than a sovereign cost cutting program, I would fully agree with you. I hope that that, and only that, is your position!

The money which has been sent to Greece so far (to the government as well as to the private sector) has been used to finance 4 purposes: budget deficit (including debt service); reduction of risk on the part of foreign lenders to the private sector; imports and capital flight. By far the largest item was imports followed by capital flight.

Greece MUST reduce imports (and substitute with domestic production) and MUST stop the official capital flight via bank accounts. In short: special taxes on imports and restrictions of capital transfers abroad.

Additionally, Greece must attract some of the money which wealthy Greeks presently hold offshore. Part of that money would quickly return to Greece if the foreign investor found an attractive and competitive business framework. A Foreign Investment Law must be passed as a constitutional law to assure the investor of everything that he wants assurance for and the EU should guarantee the politicial risk (not the economic risk) of such investments.

One cannot convert the entire corrupt and crony-driven Greek economy to a market-based social economy in a short time but one can do it with parts of the economy. For that purpose, Greece should establish Free Trade Zones where the foreign investor is offered the attractive and competitive business framework. Over the years, and if those FTZ work successfully, they will rub off on the rest of the economy.

If this is handled well, it could well lead to a reboot of the private sector where Greeks find new jobs (and pay taxes); where companies operate profitably (and pay taxes) and where owners pay taxes on dividends received.

I have experienced first-hand in Chile in the late 1970s/early 1980s how that can indeed be accomplished. Without that, Greece, the Greek economy and the Greek people will not have perspective for the future for many years to come. There will be a brain-drain to other countries and – above all – I fear that Greeks will intuitively cancel the Social Contract and that social peace will fall apart!